Monday, October 19, 2009

Well, Cement was not being Transported to china like that! Likewise after being in France this year, I was pondering why my cappuccino cost twice what it did in the United States.Many people told me that it was because Europe was more efficient than the United States, that Europe did not have the debt of the United States and that European countries where not printing money like drunken sailors etc etc. With that backdrop enjoy reading the following article. What do you think?

Aivars

Crisis Leaves Europe in Slow Lane

PARIS — Two years ago, Europe was growing more rapidly than the United States, and the Old Continent finally seemed prepared to tackle longstanding economic challenges like rigid labor markets, runaway government spending and a rapidly aging population.

Chancellor Angela Merkel of Germany has said there is no alternative to relying on exports for growth instead of consumers.

Worldwide trade imbalances have declined by almost half since the recession's beginning.

But as Asia and the United States emerge from the global economic crisis, Europe appears likely to be the world’s laggard, threatening a return to the dark days of “Eurosclerosis.” Leaders who once spoke optimistically of fundamental changes aimed at enhancing productivity have turned to the more prosaic tasks of protecting jobs and avoiding painful political choices.

“It’s worse than being back to Square 1,” said Gilles Moëc, a senior economist in London for Deutsche Bank.

And just when it is needed most, the political will to address Europe’s bigger economic problems seems absent, according to many experts across the region and around the world.

When he was elected president of France in 2007, Nicolas Sarkozy spoke of the need for a “rupture,” including the loosening of a highly regulated labor market to better compete in the global economy.

But now, “President Sarkozy has gone, if not 180 degrees, then at least 90 degrees in the opposite direction,” said Charles Wyplosz, director of the International Center for Monetary and Banking Studies in Geneva. “The things he talked about then still need to be done if we want to have growth, but the crisis has slowed some of the impetus for change.”

In Germany, Angela Merkel, who was elected last month to a second term as chancellor, has also avoided taking on the country’s powerful unions and its regional banks. She has embraced the “social market economy” and has insisted there is no alternative to relying on exports rather than consumers to drive growth.

In addition, her government has come under withering attack from elsewhere in Europe for providing billions of euros in aid to keep the automaker Opel at the possible expense of workers in Belgium, Britain and Spain.

With Europe plagued by huge manufacturing overcapacity, other automakers are likely to suffer further losses. After surging this year on cash-for-clunkers incentives in many countries, car sales in Western Europe are expected to drop 5 to 6 percent next year, according to Credit Suisse.

In Germany, where the automobile industry is as much a symbol as beer at Oktoberfest, Credit Suisse projects that sales to individual buyers will fall 21 percent, in contrast with an expected 18 percent increase in the United States.

It is not just the auto sector that is threatened: analysts also contend that recent stress tests applied to the Continent’s banks were not as effective as those used in the United States.

Despite losses on both American subprime debt and local loans in boom-to-bust economies in Spain, Ireland and the Baltics, “the banking system has not really been restructured,” said Nicolas Véron, a research fellow at Bruegel, a policy center in Brussels. As a result, Europe runs the risk of repeating Japan’s “lost decade” in the 1990s, when huge losses clogged bank balance sheets and inhibited new lending.

The slowdown is an abrupt reversal from the period leading up to the crisis. Ireland’s economy grew 5 percent a year from 1999 to 2007 and became known as the Celtic Tiger, while unemployment fell during sustained growth in Europe’s biggest economies, Germany and France.

Underscoring the new pessimism, new statistics released Wednesday showed a 0.2 percent contraction in the euro zone in the second quarter, worse than forecast.

“The Europeans are losing out,” said Simon Johnson, a professor at the Sloan School of Management at the Massachusetts Institute of Technology. “The Europeans are the biggest losers of the economic crisis, even though the home of subprime madness was the U.S.”

To be sure, the American economy is not out of the woods yet, either, with unemployment still on the rise, homeowners still burdened by mortgage debts and Washington offering few details about how it will cure its own huge government deficits.

But the euro’s recent surge against the dollar mostly reflects higher interest rates on the Continent rather than optimism about Europe’s prospects, and the stronger currency actually makes European exports less competitive globally.

Already, the euro zone’s share of world trade has slipped to 28 percent in 2008 from 31 percent in 2004, according to the World Trade Organization.

Economies in Spain, Ireland and Greece are all expected to keep shrinking in 2010, while the region’s economic powerhouse, Germany, ekes out a 0.3 percent gain, according to a bleak new outlook from the International Monetary Fund.

And there are signs that Europe’s anemic economic performance will translate into less political power. European countries had an outsize voice in the Group of 7, the world’s principal economic forum since the mid-1970s. But late last month, world leaders said that elite club would soon be eclipsed by the Group of 20, a much more global assembly that includes emerging economic giants like Brazil, China and India.

Though symbolic, the shift from the G-7 to the G-20 crystallized fears that the world economy would actually be steered by what C. Fred Bergsten, director of the Peterson Institute for International Economics, calls the G-2 — the United States and China. “Ideally, it would be the G-3, but Europe doesn’t speak with a single voice and they can’t coordinate and function the same way the U.S. and China can,” Mr. Bergsten said.

What is more, the economic crisis has also paralyzed European efforts to come to grips with longer-term factors inhibiting growth, like an aging work force and slowing population growth in many countries.

Over the next 25 years, Western Europe’s population is expected to increase just 0.7 percent, to 189.8 million, from its current 188.5 million, compared with a 20 percent increase in the United States over the same period, according to the United Nations. At the same time, the overall population is getting older across the region, from the Russian border to the Atlantic.

The best way to compensate for an aging population — and therefore fewer workers — is higher productivity. But that indicator, too, has been moving in the wrong direction. After rising smartly in the 1970s and 1980s, productivity in the last decade and a half has inched up 0.9 percent annually in Europe, compared to 1.7 percent in the United States, Mr. Moëc said.

“Productivity growth in the U.S. has not been spectacular lately, but it’s been much better than Europe, and the U.S. doesn’t have this massive demographic problem,” he said. “Until now, we thought of the demographic issue as theoretical, but it’s starting to bite.”

Over the long term, that is likely to require workers to rethink the generous social benefits, long vacations and early retirement plans they once took for granted.

Louise Richardson, 65, had planned to retire now as chief executive of the Older Women’s Network, a charity based in Dublin. She will now have to delay that at least two years because of the toll the financial crisis has taken on her retirement savings.

“I can’t retire. I can’t afford to,” said Ms. Richardson, a widow whose savings have dropped to 80,000 euros, or $118,000, from 240,000 euros over the last decade. “My pension’s been completely knocked off its trolley. The money was just swallowed up.”